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Intentional Governance: Thriving in a Permanent State of Change

At the LeadingAge PEAK Leadership Summit in April 2012, governance expert Mike Wirth presented a “Learning Circle” session focusing on the structures, practices and cultures that inform effective board leadership – especially in times of accelerating and pervasive change.

His presentation, “Intentional Governance: Thriving in a Permanent State of Change,” offered a variety of practical steps to prepare board members to engage in high-level dialogue in the boardroom on matters of strategic importance and complexity.He also suggested steps to ensure board behavior and decision making align with organizational objectives fostering innovation and quality.

At the time of Wirth’s remarks, the Supreme Court had yet to issue its decision on the Accountable Care Act (ACA). Despite that ruling or how health reform ultimately plays out after November’s elections, Wirth challenged the PEAK audience to manage differently and think differently to ensure their organizations’ sustainability.

Whatever happens, he said, “Do you think reimbursements will increase? Do you think the fee-for-service model is sustainable? Do you think regulatory initiatives will decrease?”

Board members may not need to be experts in the finer points of the ACA, the high court decision, ACOs and so on, but they do need a deeper understanding that most have of the key, related issues likely to figure in their own future decision making.

In this new era, “there are so many different variables to manage, [it’s] like traveling down the river in two canoes,” Wirth said, referencing the evolving models of reimbursement. “If I’ve got a foot in each canoe…as I transfer my weight, the big question is, when do I shift?”

Boards that are able to maintain their footing in such an unstable environment have to be well-grounded not only in the complex challenges facing them but also in the fundamentals of good governance.

Foundational Responsibility

Wirth recalled the legacy of the late Coach John Wooden, who built a basketball dynasty at UCLA, winning 10 championships in 12 years. Before ever playing a varsity game, Wooden’s players reviewed the fundamentals, starting with shoelaces. They were to be pulled tight and even; a blister or sprained ankle could cause a player to miss a game.

Similarly, boards need to start with a proper foundation for good governance. Wirth cited 9 areas of focus in which high-performing boards should be expected to engage.

First are the 3 legal, fiduciary duties:

Duty of care, which requires a board member to govern as a “prudent person,” use reasonably available and pertinent information, and act in good faith.

Duty of loyalty, which requires board members to act for the benefit of the organization, disclose conflicts of interest, and avoid competition with the corporation.

Duty of obedience, which obligates board members to adhere to the corporate purpose and mission, define and be faithful to core values, and act in accordance with statutory and regulatory guidelines.

To those 3, add these 6 core governance responsibilities and definitions:

Ensure quality, service and safety.Quality is defined as the degree to which services for individuals and populations increase the likelihood of desired outcomes and are consistent with current professional knowledge and consumer expectations.

Set strategic direction. The board is responsible for envisioning and formulating organizational direction. This is done through confirming the organization’s mission, articulating a vision and specifying key goals, and optimally is conducted in partnership with management.

Protect financial health.The board must protect and enhance the organization’s financial resources and ensure they are used for legitimate purposes in accordance with the entity's mission.

Ensure competent management. A key responsibility of the board, management oversight and review are accomplished through routine CEO performance evaluation.

Perpetuate effective governance. A board must assume responsibility for itself. The board is responsible for its own development, job design, discipline, performance and periodic self-assessment.

Advocate for those served and the organization. Advocacy encompasses not only the education of legislators, community leaders and other constituents, but a full range of efforts to reinforce the organization’s grounding in the community to understand and meet public needs.

It’s helpful for even the most highly engaged, high-performing boards to walk though these fundamentals from time to time, Wirth emphasized. And remember, he cautioned:“As a board member, as an individual, you do not have authority. It is the board that has authority.” The same goes for the board chair. “The board chair has added responsibility but not a different level of authority relative to the governing body.”

Quality Oversight

Wirth challenged the audience to elevate quality oversight to the top of their board agendas. “If the purpose of our organization is to raise outcomes, that should be item number one on the agenda,” he said, yet board agendas tend to focus first on financial matters. “It’s something they [board members] can get their arms around and understand without a great deal of health care experience or knowledge, so it is typically first.”

To enhance the board’s oversight of quality and other key areas of responsibility, he recommends the use of dashboards – visual displays of the most important information needed to achieve one or more objectives, consolidated and presented in a simple graphic so the information can be taken in at a glance.Dashboards are useful in monitoring how the organization is performing against various targets and benchmarks, how its different lines of service are performing, and so on. When properly developed, this also keeps the board and management focused on the key items for significant impact as opposed to managing a laundry list of data points.

Similarly, boards should make sure that strategic planning is an ongoing discussion and mark the organization’s progress against goals and objectives in the plan. Here, too, dashboards are the way to go.

“A 114-page report is not a dashboard; that’s a novel,” Wirth said. “Board members don’t want to sit there and listen to ‘book reports’… ideally boards will establish and have a responsibility matrix with a corresponding dashboard to show progress against the pillars, goals or whatever the main tenets of the plan are.”He strongly encourages boards to engage in scenario planning – a type of contingency planning for what may befall the organization in the future and an effective method of organizational risk mitigation.

Governance Culture and Practices

Other recommendations from Wirth during this PEAK Learning Circle:

The board should interface with the CEO. “Certainly we see the presence of other executives in the boardroom, and that is absolutely accepable practice. But direct communication from the board to management should be coming to the CEO, not any other executive…A board member calling the CFO and getting a quick update on finances is not appropriate.”

Evaluate CEO performance annually. "Consistently I have observed a good practice being a deeper compensation and benefit analysis every 3 years, and manage to that criteria and corresponding increases every year… “As well, if [the CEO] is going to be evaluated on these criteria, [he or she] should have this document well ahead of time.”

It is fine for the board to meet in executive session without the CEO present. “What’s not fine is not to provide timely feedback from that session” to the CEO.

Boards must evaluate their own performance. “At a bare minimum of every two years, your board should be going through a self-assessment process.”

Engagement in advocacy should be an expectation of board service.“It’s work with philanthropy, work to educate the public…You’ve got a responsibility as a board member to engage in constituent education.Pick out the elements that can provide the most significant progress. Once those pieces are in place, you build a foundation for future years.”

Board recruitment is often ad hoc, not intentional. “The board should be representative of the community the organization serves. We have a significant opportunity to be more diverse.”

Use of board portals is growing.A web-based board portal offers confidential access to board materials and provides tools that make it easier to prepare for meetings.“We’ve seen a significant uptick ... Over 85% of not-for-profit acute-care boards [surveyed] had or planned to have an online board portal within the next 6 months.”

Know the distinction between managing and governing.“Understand that the same skill set that made me great as an executive may or may not make me great as a board member. What we have observed of great board members is the ability to ask great, and at times tough, questions of management. The ones who ask the tough questions are really the ones who have your best interests at heart.”

Make time for generative discussion. “‘Generative’ is asking questions like, ‘What would happen if our reimbursement rate fell by X percent at year's end? What would need to happen in order for us to deliver the same or improved levels of quality care? We have to have those conversations and ask great questions. What should we be doing to rectify or plan for that? What annual goals will we set for the CEO if we want to be prepared for future regulatory changes? What percentage of our revenue will we devote to community benefit? These are great dialogues to have at the board level.”

Encourage relationship-building among board members. “What are you doing intentionally to create an opportunity for them to share their name, where they’re from, what they do or did, and why they chose to serve on the board? If you ask just those 4 questions…you will be more productive as a board.”

Mike Wirth, former president of The Governance Institute, is now the Health Care Practice Director at Kenexa and still finds time to help boards through his own company, LeapQuest, Inc. Based in Lincoln, NE, he may be reached at mikewirth@live.com.Learn more about The Governance Institute, a division of National Research Corporation.